Political Turnover, Ownership, and Corporate Investment
52 Pages Posted: 22 Aug 2014 Last revised: 23 Dec 2016
Date Written: 10 30, 2016
We examine the impact of political influence and ownership on corporate investment by exploiting the unique way provincial leaders are promoted in China. The tournament-style promotion system creates incentives for new governors to exert influence over investment in the early years of their term. We find a divergence in investment rates between state owned enterprises (SOEs) and private firms following political turnover. SOEs increase investment by 6.0% following the turnover while investment rates for private firms decline, suggesting that the political influence exerted over SOEs may crowd out private investment.
Keywords: Corporate investment, Political turnover, China, SOE, Grabbing-hand, Crowding out, Investment efficiency.
JEL Classification: G30, G31, G38
Suggested Citation: Suggested Citation